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TMI Blog2017 (11) TMI 1501X X X X Extracts X X X X X X X X Extracts X X X X ..... to light with respect to the assessment undertaken in Assessment Year 1996-97. The authority notes that the assessing officer had found that although certain import declarations had been shown as remaining in closing stock, it appears that the same had in fact been utilized in the year of assessment itself and not carried forwarded to the next year. The Additional Commissioner accordingly granted permission to the assessing authority to initiate proceedings for reassessment as contemplated under Section 21 of the 1948 Act. Although the assessee was called upon to show cause and give a reply, there appears to have arisen a situation where a prayer for adjournment was refused and the reassessment itself finalized thereafter. A reading of the order dated 29 March 2003 passed under Section 21 establishes that it was the case of the Department that although the assessee had shown 390 Forms-31 as remaining in closing stock, it had already utilized 238 such Forms in the assessment year in question without making an appropriate disclosure in this respect. In view thereof, the assessing authority proceeded to record a finding that of the 238 Forms, the total sales turnover was estimated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssues. It is upon the assessing authority being satisfied that the conditions precedent for invocation of Section 21 exist that it would proceeded to obtain permission and put the assessee to notice. The formation of an opinion as well as having a reason to believe that the assessee has been under assessed or that turnover has escaped assessment must necessarily be based on material on record or evidence which comes to the fore tending to indicate that the assessee had been under assessed or that the turnover had escaped assessment. The formation of an opinion and the material on record which forms its substratum and core have an inseparable link and connect. It is on the state of the record as noticed and taken into account that the assessing authority proceeds to form an opinion that the turnover has escaped assessment. In view of the above, the exercise of powers under Section 21 must necessarily be confined to the material which has led the assessing authority to form an opinion that the turnover had escaped assessment. It is the grounds and the material upon which the assessing authority bases his opinion, comes to conclude and formulates a "reason to believe" alone that the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... To put it differently, if there are, in fact, some reasonable grounds for the assessing authority to believe that the whole or any part of the turnover of a dealer has escaped assessment, it can take action under the section. Reasonable grounds necessarily postulate that they must be germane to the formation of the belief regarding escaped assessment. If the grounds are of an extraneous character, the same would not warrant initiation of proceedings under the above section. If, however, the grounds are relevant and have a nexus with the formation of belief regarding escaped assessment, the assessing authority would be clothed with jurisdiction to take action under the section. Whether the grounds are adequate or not is not a matter which would be gone into by the High Court or this Court; for the sufficiency of the grounds which induced the assessing authority to act is not a justiciable issue. What can be challenged is the existence of the belief but not the sufficiency of reasons for the belief. At the same time, it is necessary to observe that the belief must be held in good faith and should not be a mere pretence. 12. It may also be mentioned that at the stage of the issue o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sufficiency of reasons for forming this belief is not for the Court to judge but it is open to an assessee to establish that there in fact existed no belief or that the belief was not at all a bona fide one or was based on vague, irrelevant and non-specific information. To that limited extent, the Court may look into the conclusion arrived at by the Income Tax Officer and examine whether there was any material available on the record from which the requisite belief could be formed by the Income Tax Officer and further whether that material had any rational connection or a live link for the formation of the requisite belief.' (Phool Chand case [Phool Chand Bajrang Lal v. ITO, (1993) 4 SCC 77] , SCC pp. 95-96, para 25)" (See ITO v. Lakhmani Mewal Das [ITO v. Lakhmani Mewal Das, (1976) 3 SCC 757 : 1976 SCC (Tax) 402 : (1976) 3 SCR 956] ; Chhugamal Rajpal v. S.P. Chaliha [Chhugamal Rajpal v. S.P. Chaliha, (1971) 1 SCC 453 : (1971) 3 SCR 342] ; Calcutta Discount Co. Ltd. v. ITO [Calcutta Discount Co. Ltd. v. ITO, (1961) 2 SCR 241 : (1961) 41 ITR 191] and S. Narayanappa v. CIT [S. Narayanappa v. CIT, (1967) 1 SCR 590 : (1967) 63 ITR 219] .) 28. This Court has consistently hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... qual bearing on the construction of those words in Section 21 of the Act." In view of the inextricable and umbilical link between the material and the formation of an opinion, in the considered view of this Court, it was wholly improper for the assessing authority to proceeded to assess the revisionist with respect to the sale of SSF. As noted above, the assessing authority had never decided to reassess the revisionist on the issue of SSF. The formation of opinion was based solely upon material which seemed to suggest that the disclosure with respect to closing stock of forms was incorrect. This issue alone formed subject matter of the permission granted as well as the show cause notice. The scope of reassessment should have therefore necessarily stood confined to the above. During the reassessment or after the said process was set in motion, it was not open to the assessing authority to review the entire assessment undertaken earlier. The path which the assessing authority proceeded to traverse could not have been validated or conferred an "imprimatur" by the Tribunal. This more fundamentally so since this issue neither formed the subject matter of the permission which was accor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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